Fairfield Sentry Ltd. v. BNP Paribas Sec. Servs. Lux. (In re Fairfield Sentry Ltd.)

660 B.R. 568

IN RE: FAIRFIELD SENTRY LIMITED, et al., Debtors in Foreign Proceedings.

Fairfield Sentry Ltd. (In Liquidation), et al., Plaintiffs, v. BNP Paribas Securities Services Luxembourg, et al., Defendants.

Case No. 10-13164 (JPM) (Jointly Administered)

Adv. Pro. No. 10-03627 (JPM)

United States Bankruptcy Court, S.D. New York

Signed June 14, 2024

WINSTON & STRAWN LLP, Counsel for Altipro Master Fund: 1901 L. Street, N.W., Washington D.C. 20036, By: Keith R. Palfin, Heather Lamberg

BROWN RUDNICK LLP, Attorneys for the Plaintiffs Joint Liquidators, Seven Times Square, New York, NY 10036, By: Jeffrey L. Jonas, David J. Molton, Marek P. Krzyzowski

MEMORANDUM OPINION AND ORDER DENYING DEFENDANT'S MOTION TO DISMISS

JOHN P. MASTANDO III, UNITED STATES BANKRUPTCY JUDGE

I. INTRODUCTION

Pending before the Court is the motion of the Defendant, Altipro Master Fund ("Altipro" or "Defendant"), sued as Altigefi-Altipro Master a/k/a Olympia Capital Management, to dismiss the Fifth Amended Complaint (the "Amended Complaint") for lack of personal jurisdiction. Mot. to Dismiss, ECF¹ No. 171. The Court held a hearing on the Motion to Dismiss on May 3, 2024 (the "Hearing"). For the reasons set forth herein, the Court DENIES the Defendant's Motion to Dismiss.

II. JURISDICTION

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157 and the Amended Standing Order of Reference dated January 31, 2012 (Preska, C.J.). This Court previously concluded that it has subject matter jurisdiction over this and related actions. See In re Fairfield Sentry Ltd., 2018 WL 3756343 (Bankr. S.D.N.Y. Aug. 6, 2018); see also Stip. Order, ECF No. 116. Personal jurisdiction is contested by the Defendant and will be discussed below.

III. BACKGROUND

This adversary proceeding was filed on September 20, 2010. Compl., ECF No. 1. Kenneth M. Krys and Greig Mitchell (the "Liquidators"), in their capacities as the duly appointed Liquidators and Foreign Representatives of Fairfield Sentry Limited (In Liquidation) ("Sentry") and Fairfield Sigma Limited (In Liquidation) ("Sigma" and, together with Sentry, the "Fairfield Funds") filed the Amended Complaint on August 11, 2021. Am. Compl., ECF No. 143. Via the Amended Complaint, the Liquidators seek the imposition of a constructive trust and recovery of nearly $47 million allegedly received by BNP Paribas Securities Services Luxembourg ("BNP Paribas SSL") and Beneficial Owners of the Accounts Held in the Name of BNP Paribas Securities Services Luxembourg (the "Beneficial Owners"). Id. ¶¶ 1, 34. Of that amount, Defendant allegedly received at least $15,290,993 million through a redemption payment from its investment in Sentry. Opp'n at 1, ECF No. 277.²

A. The BLMIS Ponzi Scheme

This adversary proceeding arises out of the decades-long effort to recover assets of the Bernard L. Madoff Investment Securities LLC ("BLMIS") Ponzi scheme.³ Am. Compl. ¶ 1. BNP Paribas SSL allegedly invested, either for its own account or for the account of others, into several funds, including Sentry and Sigma, that channeled investments into BLMIS. Id. ¶¶ 2, 5, 16.

Fairfield Sentry was a direct feeder fund in that it was established for the purpose of bringing investors into BLMIS, thereby allowing Madoff's scheme to continue. Id. ¶¶ 5; 46-47; see also In re Picard, 917 F.3d 85, 93 (2d Cir. 2019) ("A feeder fund is an entity that pools money from numerous investors and then places it into a 'master fund' on their behalf. A master fund—what Madoff Securities advertised its funds to be—pools investments from multiple feeder funds and then invests the money."). Fairfield Sigma, in contrast, was an indirect feeder fund, established to facilitate investment in BLMIS through Fairfield Sentry for foreign currency. Am. Compl. ¶¶ 46-47. BLMIS used investments from feeder funds, like the Fairfield Funds, to satisfy redemption requests from other investors in the scheme. Id. ¶¶ 6-8, 14. Without new investors, BLMIS would have been unable to make payments to those who chose to withdraw their investments, and the scheme would have fallen apart. Id. ¶¶ 7-8, 13-15, 47, 50-52.

The Amended Complaint alleges that investors received payments on account of their shares in the Fairfield Funds based on a highly-inflated Net Asset Value ("NAV"). Id. ¶ 7. BNP Paribas SSL is allegedly "one such investor." Id. To calculate the NAV, administrators used statements provided by BLMIS that showed "securities and investments, or interests or rights in securities and investments, held by BLMIS for the account of Sentry." Id. ¶ 49. In fact, no securities were ever bought or sold by BLMIS for Sentry, and none of the transactions on the statements ever occurred. Id. ¶ 50. The money sent to BLMIS by the Fairfield Funds for purchase of securities was instead used by Bernard Madoff to pay other investors or was "misappropriated by Madoff for other unauthorized uses." Id. The NAVs were miscalculated, and redemption payments were made in excess of the true value of the shares. Id. ¶ 53. The Fairfield Funds were either insolvent when the redemption payments were made or were made insolvent by those payments. Id. ¶ 52.

BNP Paribas SSL is a corporate entity organized under the laws of Luxembourg with a registered address in Luxembourg. BNP Paribas SSL is an affiliate and subsidiary of its ultimate parent entity, BNP Paribas S.A. (collectively the "BNP Companies"). Am. Compl. ¶ 59. BNP Paribas S.A. is described as a "banking and financial services conglomerate with headquarters in Paris, France, and offices in New York, New York." Id. BNP Paribas SSL is a bank that invested in one of many BLMIS feeder funds for itself or others. Id. ¶ 2.

Defendant is a corporate entity organized under the laws of France with a registered address in Paris, France. Id. ¶ 39. Defendant alleges that it was a fonds commun de placement,⁴ represented by its portfolio management company, Olympia Capital Management SA. Mem. L. at 1, ECF No. 172. In a May 2022 letter to former counsel for the Plaintiffs, Defendant's counsel explained that Altipro "does not have independent legal status or employees of its own; it can only act in legal matters through, and as represented by, its portfolio management company." Declaration of David Molton in Support of Liquidators' Opposition ("Molton Decl.") Ex. 1 at 2, ECF No. 278. Counsel further stated that Altipro is a "diversified fund of funds investing in many funds" and that it does not buy or sell long-term investments. Id.

Defendant is alleged to have retained BNP Paribas Securities Services, S.A. ("BNP SS") as its agent to invest in and recover redemption payments from Sentry. Opp'n at 2. From 2005 to 2007, Defendant allegedly subscribed through BNP SS for 19,507.62 shares of Sentry. Id.

Bernard Madoff was arrested in violation of federal securities laws on December 11, 2008. Am. Compl. ¶ 167. The United States Attorney brought criminal charges against him, alleging that Madoff ran a Ponzi scheme. Id. On December 11, 2008, the Securities Exchange Commission filed an action in the Southern District of New York to halt the continued offerings of securities. Id. ¶ 168. In March 2009, Madoff pleaded guilty to criminal charges against him and confessed to operating a Ponzi scheme and fabricating statements and trade confirmations. Id. ¶¶ 169-70. Madoff was sentenced to 150 years in federal prison and died in April 2021. Id. ¶ 171.

The Amended Complaint alleges that Defendant, through its agent "BNP Paribas SSL had knowledge of the Madoff fraud, and therefore knowledge that the Net Asset Value was inflated" when the redemption payments were made. Id. ¶ 183. The Amended Complaint further asserts that between 1997 and 2008, BNP Paribas SSL "ascertained multiple indicia of fraud . . . leading it to believe that BLMIS was a fraud, and, therefore, that the Net Asset Value could not be accurate." Id. These indicia included the impossibility of validating trades and repeatedly ignoring the companies' own internal policies and procedures regarding potential fraud. Id. ¶¶ 184-87.

B. The Prior Litigation and Procedural History

The Fairfield Funds were put into liquidation in the British Virgin Islands ("BVI") in 2009. Id. ¶¶ 26-28. The BVI court issued orders appointing the foreign representatives, Kenneth Krys and Greig Mitchell, as liquidators of the Fairfield Funds. Id. ¶ 28. Pursuant to the appointment order of the BVI court,⁵ the "Foreign Representatives are responsible for all aspects of the Funds' business, including protecting, realizing, and distributing assets for the Funds' estates." Id. ¶ 177. The Liquidators commenced actions in the BVI against a number of investors who had redeemed shares of the Fairfield Funds before the collapse of the scheme. Mem. L. at 7, ECF No. 177; Fairfield Sentry Ltd. v. Citibank, N.A. London, 630 F. Supp. 3d 463, 475 (S.D.N.Y. 2022); see also In re Fairfield Sentry Ltd. v. Theodoor GGC Amsterdam (In re Fairfield Sentry Ltd.), 596 B.R. 275, 284 (Bankr. S.D.N.Y. 2018) ("Fairfield II").

The Liquidators filed petitions in this Court in June 2010 under Chapter 15 of the Bankruptcy Code, seeking recognition of the BVI proceedings as foreign main proceedings. Am. Compl. ¶ 29. This Court granted that recognition on July 22, 2010. Id. All cases filed by the Plaintiffs were administratively consolidated before this Court in November 2010. See Consolidation Order, Adv. Pro. No. 10-03496, ECF No. 25.

The Plaintiffs asserted multiple causes of action in those consolidated adversary proceedings including, inter alia, mistaken payment and constructive trust.⁶ Compl. ¶¶ 61-84, ECF No. 6; see also 630 F. Supp. 3d at 479. In October 2011, this Court stayed the U.S. proceedings pending resolution of the BVI proceedings. See Am. Order Staying Redeemer Actions, Adv. Pro. No. 10-03496, ECF No. 418; In re Fairfield Sentry Ltd., 2018 WL 3756343, at *3 (Bankr. S.D.N.Y. Aug. 6, 2018).

In April 2014, the Privy Council affirmed dismissal of the...